PayPal sent an email to US users on Friday to announce amendments to its User Agreement and to its PayPal Payment Pro and Virtual Terminal Agreement. The amended policies take effect on January 25, 2008.

Some users posting on industry discussion boards were unclear on what was actually changing in the User Agreement. Some believed PayPal was changing the default funding source, but a comparison of the policy update with the existing User Agreement - last changed in October - shows PayPal continues to fund transactions from users' account balances before any other method. PayPal draws from account balances even before using an account-holder's preferred funding source with the exception of PayPal Credit or eCheck. (See sections 3.2 and 3.3 in the old and new policies for exact wording.)

It appears there are few substantive changes to the User Agreement. However, users should keep an eye on two new terms: "Viewable Online Proof of Deliver," which PayPal substitutes for "proof of delivery"; and "Viewable Online Signature Confirmation," which it substitutes for "online signature confirmation." Definitions for these new terms will appear in the new policy, but PayPal does not define them on the policy update page.

In addition, PayPal is adding a new definition for the term "Approved Shipper," and will be editing other terms, such as "Chargeback" and "Reversals." Because the new definitions are not included in the update notification, it's impossible to know their significance.

Merchants who use PayPal Payment Pro and Virtual Terminal should read Friday's announcement to see what changes to that agreement are coming next month, particularly Section 6 which discusses optional Fraud Management Filters that allow merchants to accept transactions with a higher likelihood of risk. The announcement states merchants will be liable for all additional risk and states it is their responsibility to adjust the Fraud Management Filters to determine whether they wish to accept or decline such transactions.

PayPal appears to be also introducing optional Advanced Fraud Management Filters for which there will be a charge of $20/month plus 5 cents per transaction.

Users should review complete details by logging in to their PayPal accounts and looking in the What's New section on the left side of the page for the latest Policy Updates.